Accrued Interest

When you borrow money from a lender, you have to make payments, which are usually monthly, to repay that money. Included in the monthly payment are the principal, taxes, any insurance, and the interest. The amount of interest that accumulates between payments is known as accrued interest.

Interest is how the lender makes money on a mortgage. It is the price that the lender charges for loaning the money and is based on a percent of the total loan amount. When you get the loan, you agree to a certain interest rate. The interest rate depends on the type of loan that you obtain. For example, if you are getting a 30 year fixed rate mortgage, you may be able to get a 7 percent interest rate. But, if it is a credit card, the interest rate may be 18 percent. Certain types of loans have lower interest rates than others. The lower the interest rate, the lower the amount of accrued interest that you will pay.

Accrued interest is part of the cost borrowing money. The longer it takes to repay the loan, the more accrued interest you will pay.